Oil Spikes as Israel’s Attacks on Iran Stoke Fears of Wider War

Ellen Wald, Senior Fellow at the Atlantic Council, breaks down the path for oil prices following the Israel airstrike on Iran.

Oil surged as much as 14% after Israel carried out airstrikes against Iran, raising fears of a wider war in a region that accounts for a third of global crude production.

West Texas Intermediate crude futures topped $77 a barrel at one stage, the biggest intraday jump since May 2020, before paring gains to trade near $73 a barrel. The price of European natural gas — also a major Middle Eastern export — rallied and haven demand pushed gold closer to a record.

Iran fired hundreds of ballistic missiles at Israel in response to an unprecedented attack on its nuclear facilities, escalating a conflict between sworn enemies that threatens to engulf the oil-rich Middle East.

The Islamic Republic targeted Israeli cities with multiple waves of missiles and a barrage of drones starting Friday evening, some of which breached the country’s air defenses. US forces helped shoot down the projectiles

Three people were killed in the Tel Aviv area and at least 40 were injured in multiple strikes, according to police and emergency services. There was video footage of at least one large explosion in Tel Aviv and reports of blasts over Jerusalem. The full extent of the damage is still being assessed.

Israel’s air defense systems including the Iron Dome and David’s Sling boast an interception rate upward of 90%. If combined at varying altitudes, the chance of a successful shoot-down increases exponentially.

Israel, which killed top Iranian generals and badly damaged key military infrastructure with its first strikes overnight Thursday, continued targeting Iran’s defense arrays on Friday and early Saturday.

More than 200 aircraft participated in Israel’s initial operation that hit around 100 locations. Iran’s ambassador to the United Nations, Amir Saeid Iravani, said 78 people were killed and more than 320 people have been wounded so far across the country.

Several residential buildings in Tehran’s suburbs were hit, according to Iranian media.

Markets have taken another hit from the surge in tensions: The S&P 500 lost more than 1% on Friday, wiping out this week’s advance. West Texas Intermediate crude futures surged more than 7%, the most since March 2022. Gold and the dollar rose.

The intensity of the fighting represents a turning point for both Israel and Iran, testing new limits in terms of their aggression and willingness to escalate. When the pair targeted each other on two occasions last year, there was a greater time lag and a sense that after an exchange of fire, there would be a dé​tente. Israel has indicated this operation could last weeks, while Iran has signaled no letup in its retaliation.

The fighting also casts doubt on the future of US negotiations with Iran on a deal to limit the country’s nuclear activities.

“The other side has done something that makes dialog meaningless,” Esmaeil Baghaei, a spokesman for the foreign ministry in Iran said, although he didn’t specify that a sixth round of talks scheduled to take place in Oman on Sunday would be called off.

Further escalation — particularly any targeting of American military or diplomatic facilities in the region — could rally domestic political support for Iran’s rulers and dramatically intensify the conflict. It’s unclear if Tehran is entertaining last-resort options — such as blocking the Strait of Hormuz, one of the world’s vital oil arteries, a scenario that would ratchet up concern among investors.

Iran’s Supreme Leader Ayatollah Ali Khamenei vowed to “act forcefully” in a pre-recorded video message carried by state TV. Israel “should not think that it is over. We won’t allow them to escape unscathed from this great crime they have committed,” he said in a statement released after Iran started its retaliation.

The semi-official Fars news agency citied an unnamed military official as saying the conflict will soon “expand” beyond Israel to US bases in the region.

So far, Iran has chosen to keep the US out of the conflict — a decision that an analysis by Bloomberg Economics suggested was the most likely since Tehran can’t afford to go to war with the world’s biggest economy and most powerful military.

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